Inside: Construction and infrastructure developments in Myanmar, boom or … boom?

The country’s double-digit growth rate is expected to remain steady after decades of stagnation

Myanmar’s building industry is on the move; its new double-digit growth rate is expected to remain steady for the foreseeable future after decades of stagnation.

The industry expanded 16 percent in 2012 over the previous year, according to the research arm of one of Thailand’s largest banks. Kasikorn Research said the expansion was up from a rate in the low single digits. Pent-up demand is driving the sector despite major constraints, which include surging prices of land and premium office and condo rents, the lack of a national construction law, and a fragmented regulatory environment.

Growth is projected to remain in the double digits for an extended period due to extensive investments in infrastructure. Plans have been announced already for the construction of new roads and highways, telecom tower stations, power plants, airports, deep sea ports and railway upgrades. The IMF is projecting a steady rise in GDP this year to 7.5 percent, substantially higher than the 6.9 percent projected just a few months ago. Already, Myanmar’s GDP growth forecast almost matches China’s.

Hospitality surge

Although the supply of first-class hotel rooms in Yangon is on track to triple over the next two years, supply will continue to lag demand by a very wide margin. Yangon had just 9,500 hotel rooms last year, with only about 1,800 meeting international standards, according to Myanmar’s Ministry of Hotels and Tourism. By 2015, another 3,442 new international standard rooms will be added, but tourist arrivals are climbing rapidly.

Yangon’s existing airport saw international passenger arrivals soar by 53 percent in 2012 to more than 550,000, and another 36 percent in the first five months of last year. A new airport being built in Bago will be able to handle 12 million arrivals a year when it opens in 2017. The government’s goal is to reach 7.5 million tourist arrivals by 2020 (a seven-fold increase from the current level). These projections indicate that the mismatch between supply and demand will continue, particularly during the high tourist season (December to May).

Room shortages are also critical outside Yangon, particularly at tourist destinations such as Inle Lake, Mandalay, Bagan and Ngapali Beach. New areas of the country will also open as a nationwide ceasefire agreement is nearing. Hopefully, it will be followed by a peace agreement between the national government and armed ethnic groups.

Construction in remote areas is more difficult due to the lack of adequate roads, supplies of construction materials, heavy equipment, skilled contractors and manpower. Moreover, there are few project developers who can access financing for development as local loans are rarely available. This creates opportunities for foreign investors with capital. According to government figures, local businesses invested over $800 million in 2013 in hospitality and residential construction projects, while foreign investors (mainly from China, Thailand, Hong Kong and South Korea) invested less than $40 million as of June 2013.

Residential boom

Through 2015, it is estimated that some 20 condo projects, each with 200 to 300 units, are going to be finished in Yangon alone. Still, demand for housing units will continue to vastly exceed supply as the rate of urbanization accelerates. In Yangon alone, over 20,000 new apartments will be needed every year for the foreseeable future. Foreign companies have started to use precast concrete factories for low-cost housing projects. Housing demand is so high that these normally long-term investments are made profitable even in the short run.

Consider the consequences of the following numbers from the Myanmar Construction Entrepreneurs Association. In 2000, Myanmar had some 15.5 million urban residents. By 2015, their number will swell to 23.7 million. As a result, the country is experiencing soaring prices for land, apartments, condos, retail space, commercial space, office space, etc. Furthermore, once the new Condominium Law is enacted, which is expected to allow foreigners to buy apartments in Myanmar, price competition in this sector will increase. Finally, the Myanmar government recently launched the country’s first construction and housing development bank and has started a program to build over one million new apartments by 2028.

Yangon City’s transformation

Yangon itself is preparing for a major strategic urban development called “Yangon 2040 - A City of Green and Gold” that aims to return the city to its status as a regional capital, complete with the infrastructure and services such a hub will require. A new Building Code for High-Rise Buildings is being adopted, and heritage buildings will be restored and transformed into commercial spaces. Currently, Yangon is estimated to have, in the aggregate, less square footage of first-class office space than one office tower in Bangkok, a city of similar size. A number of office tower projects are underway, while businesses seek office space in condos, converted houses, and other nonconventional solutions. The result is that foreign investors’ rents for first class office space can vary from $7sqm to $22sqm per month.  In time, these market discrepancies will level off, but the current chaos provides a substantial investment opportunity, particularly for mixed-use commercial buildings.

Industrial expansion

Large and small foreign manufacturers have started to announce Greenfield projects in Myanmar. From Coca Cola to British-American Tobacco to Nissan and Unilever, they cover a broad spectrum of industries. Some of these projects will be located near major metropolitan areas, while others will be along major highways which provide stable road access, particularly during the rainy season. Nevertheless, due to the severe shortages of electric power in Myanmar, substantial industrial development will likely be delayed until this issue is remedied (the government has announced a $20 billion plan to increase generating capacity to 16,500MW by 2022). In time, the lack of quality roadways, a large deficiency in logistics capacity and shortages of skilled labor will also have to be addressed.

Regulatory considerations

In the past, construction growth was stunted by land price speculation (land prices rose five-fold between 2002 and 2011, and continue to rise), and the difficulty of establishing title to the land. In the absence of a nationwide construction law, a developer will normally try to establish the ownership of the land, and then apply for a building permit. Some municipalities, such as Yangon, have quite detailed requirements for the issuance of a building permit, as well as a complex construction code, while other don’t.  For example, the list of regulations for Yangon construction includes:

  1. Yangon City Municipal Law (1990)
  2. Yangon City Building Rules
  3. Yangon City Municipal Rules
  4. Yangon City Municipal Committee’s Notifications
  5. Instructions for Buildings published by the Yangon City Municipal Engineer Department for Buildings
  6. Yangon City Environment and Sanitation Rules (1999)
  7. Environmental Law (2012)

Despite its challenges, which are quite numerous, the construction industry in Myanmar is forecasted to continue growing at an annual rate of over 10 percent for the foreseeable future, one of the fastest rates in Asia. There may be significant rewards for those willing to enter this chaotic, but promising market.

Contributing Author

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Eric Rose

Eric Rose is the Lead Director of Herzfeld Rubin Meyer & Rose, the first US law firm in Myanmar. He focuses on the global aspects...

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Contributing Author

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U Kyaw Hoe

U Kyaw Hoe is the managing counsel of Herzfeld Rubin Meyer & Rose. Since 1979, U Kyaw Hoe has defended the interests of both individuals...

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